SPECIAL REPORT: NAR Chief Economist Lawrence Yun Predicts 2nd Half '09 Economic Turnaround with Federal Housing Stimulus Package

SPECIAL REPORT: NAR Chief Economist Lawrence Yun Predicts 2nd Half '09 Economic Turnaround with Federal Housing Stimulus Package

Residential News » Residential Real Estate Edition | By Scott Kauffman | November 13, 2008 11:07 PM ET

(ORLANDO, FL) - There are two questions on the minds of most American homeowners:  when will the housing market finally start to rebound and how long will the current recession last? One person who understands these subjects as well as anybody is Lawrence Yun, chief economist for the National Association of Realtors.

In a special one-on-one interview with the Real Estate Channel at this weekend's NAR national convention, Yun spoke candidly about the state of the U.S. housing market, the overall economy, and where both are headed.

In one of his bolder predictions, Yun predicts the housing market can rebound from its three-year slump and jolt the country out of its current recession during the second half of 2009, so long as the U.S. government implements a housing stimulus package of some kind.

"For the next six months we will have job losses, unfortunately," Yun told the Real Estate Channel. "I anticipate probably 1 million additional job losses. Now there is a discussion of an economic stimulus plan in Washington and I think some form of stimulus will be passed.

"Hopefully they concentrate on the sector that needs it most and will help revive the economy - and that's the housing sector.

"If there can be some stimulus to create additional buyers back into the marketplace I think the recession will be very short and mild. If the housing market continues to struggle then we could see a deeper recession. So for the next six months we will see job losses. After that it will depend upon what type of stimulus package. But assuming that it is focused on the housing, I think we can begin to see the economy turning around in the second half of 2009."

Specifically, the NAR, which is the country's largest trade association with 1.2 million members, is calling for Congress to take action on a "Four-Point Housing Stimulus Plan" presented to lawmakers and the administration last month. Among the plan's highlights, according to a Nov. 6 NAR press release:

  • Eliminate the repayment of the $7,500 first-time home buyer tax credit and make the credit available to all home buyers.
  • Make increased mortgage loan limits backed by Government Sponsored Enterprises permanent.
  • Get the government's economic stabilization efforts focused on the housing and mortgage markets instead of providing capital to banks with no strings attached.
Another measure strongly being pushed by the NAR is having the government support a 1 percent reduction or "buydown" of interest rates. According to recent NAR economic analysis, this measure alone could result in up to 840,000 additional home sales and reduce the inventory of homes by as much as 20 percent. The current 9.9-month inventory supply would decrease approximately to a 7.5-month supply.

A lower interest rate combined with removing the home buyer tax credit repayment would reduce inventory by an additional 10 percent, the NAR adds, bringing the country's total number of homes for sale to an even more manageable 6.5-month supply. The rate cut would also produce modest home price gains of 2 - 4 percent, generating up to $760 billion in housing equity for the nation's 75 million homeowners.

"We have been pushing for these four points heavily because once the housing market recovers, the economy will be on track for recovery," Yun says.

Federal housing stimulus notwithstanding, Yun feels the housing market is already starting to get back on track in many parts of the country. For example, in the most recent Pending Home Sales Index report released last Friday, the index dropped 4.6 percent in September to 89.2 from an upwardly revised reading of 93.5 percent in August. However, the index still remained 1.6 percent higher than the previous September's reading.

And it was the second month in a row pending sales have been above year-ago levels.

"The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we're still in a broad period of stabilization," Yun pointed out. "Conditions remain mixed around the country, but markets that are showing annual sales gains include Long Island, N.Y.; Boston; Minneapolis; Denver and Washington, D.C., in addition to consistent solid gains in California and Florida."

Other positive signs that the housing market continues to stabilize - and perhaps already hit bottom - is the shrinking inventory of homes for sale.

For instance, the number of new homes has been falling since a peak inventory of 570,000 in August 2006, to 394,000 this past September.  Meanwhile, the number of existing homes in September was 4.27 million - a 9.9-month supply at the current rate of sales, down from an 11.2-month supply in April.

"There are many housing market indicators," Yun points out. "Some have already shown that it has stabilized and maybe on a recovery. Home sales and buyers are coming back - nationally speaking - modestly higher. But some markets like Florida and California, a significantly higher number of buyers are coming back into the marketplace. So in terms of sales (the real estate market) appears to have already bottomed."

To be sure, much of the heightened sales activity across the country involves distressed properties - a figure a recent NAR survey shows could be as high as 35-40 percent of all recent sales. Consequently, affordability is as high as it's been since 2003, as measured by NAR's Housing Affordability Index. The current index is at 130, which means that a family earning the median family income has 130 percent of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home ($191,600 as of September, down 9 percent from the previous year's median of $210,500).

Clearly, the upside of many of these bank-owned foreclosed homes or short sales is a boon to the American public. For instance, the NAR reports sales increases of 20 percent or more between the first and second quarters of 2008 in Arizona, California and Nevada, a 51 percent jump in Idaho and more than 10 percent gains in Florida and Virginia.

The recent presidential election also appears to be fueling Yun's optimistic outlook for the coming year(s).

"We're always interested in the housing agenda independent of the political party," says Yun, explaining the NAR did not endorse either candidate. "Fifty two percent of the population is obviously very happy about their candidate having won the election. We're interested in the housing issues. And President-Elect (Barack) Obama has said that he is very open to looking into housing stimulus measures, and we will provide him with information necessary and ideas as to how he can stimulate the housing.

"Furthermore his team believes in the fundamental long-term benefit of homeownership. So we are very fortunate that independent of the political party that it is the imbedded American value that owning a property is part of owning America."

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